Ever since Palantir (NYSE:PLTR) stock went public via a direct listing, the company’s contracts with the federal government have been part of the bearish narrative.
In the United States, we’ve just marked the anniversary of the terrorist attacks of September 11, 2001.
This tragic event was the beginning of a “War on Terror” that continues to this day. It is a war in which Palantir has been an active participant.
One of the benefits of having a company like Palantir involved is that the war on terror has been fought out of the view of ordinary Americans for the most part, but that may be changing.
Our country’s exit from Afghanistan has highlighted what some have feared about the patience of global terrorists such as the Taliban. That is, we may have the watches, but they have the time.
This is leading some to believe that our country’s efforts to combat terrorism may once again become more visible. Is it unreasonable to expect Palantir to benefit from a more visible approach to fighting terrorism? I don’t think so.
There are many reasons why investors find Palantir off-putting. One of them is that a significant percentage of the company’s revenue comes from the federal government. And not only the government, but the military.
What makes investors more queasy is that Palantir has business relationships with elements of our government that we would rather not know about. In fact, Palantir was allegedly involved in the effort to track down Osama Bin Laden.
America is hopefully taking the first steps toward the normal we remember. Even as that is happening, we are going to be reminded that the war on terrorism has never really ended. That conflict is about to get ratcheted up a notch or three, which means that the government is likely to look to Palantir for its expertise in that area.
To that end, Palantir announced it has new deals in place with the U.S. Army, Air Force, Coast Guard. The company also worked out a two-year $100 million contract with the U.S. Special Operations Command.
Private Sector Growth and Insider Selling
Palantir has said it expects annual revenue growth to be higher than 30% for the next five years, and the company is exceeding those expectations in 2021.
In its most recent quarter, the company posted year-over-year revenue growth of 49%. Fans of free cash flow (FCF) should take note that the company has generated over $200 million in FCF for the first half of the year.
While Investors can expect a sizable chunk of that growth to come from the public sector, the company is making significant inroads into the private sector as well. Specifically, Palantir announced that the number of commercial customers grew by 32% from the prior quarter.
Another reason for investors to be skeptical about PLTR stock is the amount of insider selling that has occurred since the stock began trading publicly.
I tend to follow the mantra that there are a million reasons for individuals to sell a stock, but it’s still hard to ignore the amount of insider selling that’s taken place.
On the company’s last earnings call, chief financial officer Dave Glazer reaffirmed a point he made in the prior earnings report. That is that a significant portion of the selling was due to options expirations that will take place at the end of 2021.
PLTR Stock Looks to Be a Buy
I’ve been on the fence about Palantir for most of the year. However, the company’s deep ties to the U.S. defense industry are likely to give PLTR stock a revenue boost in the short term.
The comparison I’ll use is this: Amazon (NASDAQ:AMZN) is about more than e-commerce, but it was the company’s expertise in that area that is the biggest contributor to the stock’s 81% gain since March 2020.
In the same way, Palantir is not just about its contacts within the defense industry, but it’s that expertise that puts it in a position to capture revenue during a time when that skill set will be valuable.
While I wouldn’t bet that PLTR stock will see an 81% stock price gain, I do expect the stock to retest and move past recent highs in the next few months.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.